Trading Bitcoin: The 2 Most Common Ways To Go About It

Posted on October 7, 2020 by Allen Brown

Bitcoin is getting more mainstream by the day both in terms of how easy it has become to use to buy things and for how much money there is to make off of investing. With the newfound interest in Bitcoin, people are wondering how to go about buying and selling it

Since the early days after Bitcoin was first released, there have been a lot of ways created to do this. It isn’t easy to know where to start as a result. It’s important to do a little research to find the best method for your needs and how you plan to use bitcoin or other cryptocurrency.

In this article, I will go over the two most common ways to go about buying and trading bitcoin.

Old school exchanges

The first way to trade bitcoins was the creation of exchanges. It is literally a marketplace where people can use their credit card or bank account to exchange their fiat currency for buying bitcoin

This is the most popular and common way to buy bitcoin. You have to be careful, however, as not all marketplaces are created equally and some may not even be legal where you live. 

The exchange in this case is really the only instance where there is a so-called middleman when it comes to cryptocurrencies. The whole reason for their existence is to avoid needing a central authority that controls the distribution of the coins. In the case of the exchange, it is necessary to be able to get your coins but there is no real authority that governs how they operate.

The way it works is similar to a bank. You open up an account, called a wallet and then buy coins from your credit or debit card and add the cryptocurrency to your account. Then you are free to use them how you please or sell them on the same or other exchange.

Peer to Peer exchanges

In this case, rather than have a middleman like the platform used for an exchange, two different users will trade directly with each other. The only time a third party gets involved is if there is some kind of dispute.

There is a marketplace, but in this case, buyers and sellers are matched to each other based on a certain set of criteria. There is also a lot of flexibility as there are so many payment options available. Even in the case that somebody doesn’t have any money. There are ways to barter for goods in exchange for some bitcoin as well.

Security is also very tight as there are a number of protocols that work to make sure everything is fair and transparent. It works like an escrow account and coins are only transferred when both parties are satisfied. 

Which one is better?

There is no real better or worse in either of these situations. They both have fees, so they are equal as far as that goes.

In the case of the traditional exchange, since there is nothing to really figure out the process is very easy and fast. With P2P, you have to match up with the right user which can take a little time.

The thing that tilts towards P2Ps favor however is that people that don’t have a bank account can’t usually access the traditional exchange. 

All this to say that which one you should use depends on your own unique circumstances. 

*This article has been contributed on behalf of Paxful. However, the information provided herein is not and is not intended to be, investment, financial, or other advice.